US. Property Market

Some briefs from news stories on the other side of the pond:

April 08 - Standard & Poor’s/Case-Shiller home price index of 20 cities, fell by 12.7 percent in February from a year earlier, the largest decline since its inception in 2001. Seventeen of the 20 metro areas reported record annual declines.

The worst declines happened in previously touted growth areas Las Vegas (22.8%) Miami (21.7%) and Phoenix

With the Bay area in California (Home to San Francisco, Berkley and Silicon Valley) seeing month fall of 5% and year on year prices fall over 17%.......

“Unfortunately there don’t seem to be any signs of a bottom point yet,” said David Blitzer, chairman of the index committee at S&P, noting that all 20 metro areas have declined for five straight months.

As the Fallout from the Sub-prime lending continues, the question is how long and how bad?

Not an easy question to answer, so I´ve been out asking a few ´City´ contacts for their take on the subject. They all appear to agree that the media have blown parts of the story out of proportion. Well that will be a first!!!!

Seriously though, few Bankers seem to think the overall financial markets are doomed, just correcting the imbalance created over the past few years. A view shared by us. Financial worlds move in cycles, most cycles have had mitigating circumstances which prelong or prematurely shorten a cycle. This cycle in the US has been prelonged by a few factors, which makes the correction seem worse than it actually is. Tha main factor has been cheap lending, when lending is cheap, people borrow, the more they borrow, the more they spend, and Real Estate has been one of the most popular choices. However, the period of cheap borrowing came to an end starting with the first increases in interest rates a couple of years ago. Multiple increases have squeezed lending and created problems for borrows over exposed to debatable markets. Therefore ´defaults´ (Mortgage payment arrears) have increased and ´foreclosures (Repossessions) have increased by 50%.

What does this mean to Real Estate values?

Basically, it means that buying property in the states is not a quick way to make a fortune, property is now flooding onto the market is some areas and some owners are going to loose money as property prices continue to decrease.

Standard & Poor´s and Moody´s ratings services lowered the boom on mortgage-backed securities last month,a second shoe finally dropped on the real estate market.

The first shoe dropped in 2007, when a bevy of mortgage firms went bankrupt after helping far too many unqualified borrowers buy homes.

Two of Wall Street´s most respected firms acknowledged that the problems associated with those “subprime” borrowers will be much worse than they previously thought. S&P and Moody´s warned they may cut the credit ratings of more than $12 billion in mortgage-backed bonds issued by such respected names as Citigroup, Lehman Bros. and Merrill Lynch.

In the past couple of months, several large investment funds that loaded their portfolios with mortgage-backed securities have been burned, led by Bear Stearns and Dillon Read. On a much-smaller scale, Brookstreet Securities in Irvine imploded late last month because of an overnight drop in the value of its mortgage-heavy investments.

“Disaster,” “horrible” and “horrendous” were among the words that Brookstreet founder Stanley Brooks used to describe the crash of his firm, which had 730 or so agents nationwide, including about a dozen in San Diego County.